National Institute of Economic and Social Research

Friday, 16 March 2012

Both Labour's "Real Jobs Guarantee" and the government's "Youth Contract" are welcome, but insufficient

[Updated April 2]

Nick Clegg today launched the government's "Youth Contract". My earlier blog below explains why neither this nor the Labour Party's alternative is anywhere near ambitious enough, given the seriousness of the issue and the scale of the problem.

The proposal for a "Real Jobs Guarantee" announced today by Ed Miliband is welcome. The proposal, to be delivered via the government's Work Programme, would guarantee a job (25 hours a week at the minimum wage) to young people (18-24) who had been claiming Jobseekers' Allowance for more than a year. It would be compulsory - those who refused could have their benefit withdrawn.

"After one year looking for work on the Work Programme,young people should have access to a part-time ‘First Step’ job guarantee – combined with responsibilities for job search and preparation."

This proposal has clear advantages, as set out in our report:

it would give young people the benefits of paid work (labour market experience, an employer reference, a way out of damaging long-term youth unemployment)

it would build on what we have learned from job guarantees in the past (such as the Future Jobs Fund), both positive and negative;

by making the jobs only part time, to allow for training and job-search, it would address the danger of ‘lock in' and make it more likely participants would progress to unsubsidised jobs.

Crucial to the success of any such programme will be to make it work with the Work Programme; that is, to ensure that providers have clear incentives to ensure that participants do move into unsubsidised employment. The element of compulsion is also important. Particularly for young people, an essential element of successful active labour market policies is that there should be no option of simply remaining on benefit without doing anything to get a job or prepare for work.

Some reported criticism of this proposal is simply ignorant. Baroness Warsi is reported as saying that

the Future Jobs Fund "squandered millions" on short-term placements..."Now they want to repeat this failed experiment"

She ought to be aware that, because of her own government's decisions, she has no evidence on which to base this assertion. As the Work and Pensions Committee reported, the government decided not to commission an independent evaluation of the Future Jobs Fund. An independent external evaluation conducted by Inclusion was broadly positive, but with some suggestions for improvements; hence our recommendations above.

In fact the proposal goes very much with the grain of current government policy: it relies primarily on the private sector both to provide the jobs and to deliver the programme, and it imposes clear responsibilities on young people to take up the support on offer. Leaving the rhetoric aside, there are no big ideological divides here.

However, equally, no-one should be under any illusion that this proposal, any more than the Government's Youth Contract - which also contains some very worthwhile elements and which I also welcomed - will transform the youth labour market. It is just too small and the coverage is too narrow:

it applies only to 18-24 year olds who have been on JSA for more than a year. Currently there are about 50,000 such people. But the Labour Force Survey shows that there are more than 200,000 people in that age group who have been unemployed for more than a year; and well over a million not in education, employment or training;

it does nothing for 16-17 year olds, who - if they are not going to go on to university - are particularly badly served by the current system. They are normally not entitled to JSA at all;

it does nothing for those who are not on JSA, or not on JSA continuously. Many young people drop out of the system entirely; others may move on and off benefits (including benefits other than JSA).

Under any plausible assumptions about additionality - the extent to which the subsidised jobs created are actually new jobs that wouldn't have been there anyway - neither the Youth Contract nor the "Real Jobs Guarantee" will pass the "Mervyn King" test, set out here by Chris Giles. That is, they won't reduce unemployment by more than a few tens of thousands at most; and even that would be success. I explain why this is the case for even successful employment programmes here.

To make a real difference, we will need to do more than spend a few hundred million pounds on youth employment programmes which only help a small proportion of the unemployed; we need to reject the logic that says it's economically sensible to keep unemployment unnecessarily high for unnecessarily long. I make some suggestions here. In 1925, Winston Churchill expressed his dismay that policymakers seemed to be "perfectly happy with the spectacle of Britain possessing the finest credit in the world simultaneously with a million and a quarter unemployed". There is no need for us to make the same mistake.

1 comment:

"the extent to which the subsidised jobs created are actually new jobs that wouldn't have been there anyway - neither the Youth Contract nor the "Real Jobs Guarantee" will pass the "Mervyn King" test"

Agreed, which is why I think JG jobs should be primarily public sector (and associated voluntary sector) jobs because that is where the trade unions have a strong presence.

The trade unions could be used to alert JG managers and government where crowding out of existing jobs occurs. Using the trade unions for this purpose would significantly reduce the costs to government of better oversight.

Of course when the economy surpasses full capacity, some crowding out would be necessary to contain inflation.